TMI Blog2014 (2) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... ay excise duty or who the manufacturer - The fact that the appellants are independent job-workers and the transactions were on a principal-to-principal basis was not disclosed to the department. Thus, there is a deliberate mis-declaration on the part of M/s. Merck Specialties Ltd. in stating that the units to which they have distributed the credit are their own manufacturing units whereas the facts were otherwise. Similarly, in the declaration made to Dy. Commissioner, Belapur I Division, the appellants did not intimate that they were availing credit in terms of Rule 7 of CCR, 2004. In views of the deliberate mis-statement of facts on the part of the appellants, the invocation of extended period of time is clearly justified. Therefore, the demands are sustainable. Once the invocation of extended period of time is held to be correct in law, mandatory penalty under Section11AC is an automatic consequence. Therefore, the appellants are liable to penalties under Section 11AC of the Central Excise Act, 1944 - once there is a mis-statement of facts or suppression of facts, mandatory penalty is imposable - Following decision of Union of India vs. Dharmendra Textile Processors [2008 (9) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of removal. Accordingly, notices were issued to the appellants for recovery of the ineligible credit availed by them. 2.1 These invoices were adjudicated upon and it was held that the appellants are ineligible for the CENVAT credit of service tax distributed by M/s. Merck Specialties ltd. Accordingly, ineligible credit availed by them were disallowed and sought to recover along with interest under the provision of Section 11A of the Central Excise Act, 1944 read with Seciton11AB thereof. Further, a penalty of equivalent amount was also imposed on the appellants in terms of Rule 15 of CCR, 2004 read with Section11AC of the said Central Excise Act. Aggrieved of the same, the appellants are before us. 3. The learned counsel for the appellants make the following submissions: 3.1 As per the agreement entered into by M/s Merck Specialties Ltd.with the appellants, they are manufacturing the goods on behalf of M/s. Merck and are also paying duty on the higher-price charged by M/s. Merck and M/s. Merck has authorized the appellants to pay duty on their behalf. In these circumstances, M/s Merck has paid service tax in respect of various taxable services which are in or in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 where in para 146 the hon'ble Finance Minister stated as follows: "148. There remains the service tax. I propose to take a major step towards integrating the tax on goods and services. Accordingly, I propose to extend credit of service tax and excise duty across goods and services. In order to neutralize the revenue impact of such extension, and keeping in mind the mean Cenvat rate, I propose to enhance the rate of service tax from 8 per cent to 10 per cent." From the above speech of the Finance Minister, it is abundantly clear that the Government wanted to integrate service tax and excise duty by extending the credit of service tax across on goods and services and if service credit is denied on the services received by the principal manufacturer which has been distributed to the job-workers, the cascading effect of taxes would remain and, therefore, the purpose of the CENVAT credit scheme would get defeated. 3.5 In view of these arguments it is prayed that the impugned order be set aside and the appeals allowed. 4. The learned Additional Commissioner (AR) appearing for the Revenue, on the other hand, submits that, as per the provisions of input service distribution sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Excisable Goods) Rules, 1996 would not include factory of job-workers loaned to them on loan licence basis. Accordingly, it is prayed that the impugned demands are sustainable in law. 5. We have carefully considered the rival submissions. 5.1 Before we proceed further, it will be useful at this juncture to go through the provisions of CCR, 2004 so far as it relates to input service credit distribution scheme is concerned. Rule 2(l) "(l) "input service" means any service,- (i) used by a provider of output service for providing an output service; or (ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, it is difficult to agree with the contention that the services received by M/s Merck is an input service relating to the manufacture of goods by the job-workers. 5.4 Secondly, input service distributor' means an office of the manufacturer or producer of final products. The office of M/s. Merck cannot be considered as an office of the job-worker and, therefore, the definition of input service distributor' is not satisfied. Thirdly, Rule 7 deals with the manner of distribution, which specifically states that the input service distributor may distribute CENVAT Credit of the service tax paid on the input service to its manufacturing units . The job-workers' factory is not the manufacturing unit of M/s. Merck Specialties but they are independent legal entities by themselves and, therefore, the question of distribution of credit by M/s. Merck Specialties ltd. to the job-workers does not satisfy the condition that the credit is distributed to its manufacturing units. It is a settled position of law that job-workers who actually undertake the manufacturing process is the manufacturer' of goods and not the supplier of raw materials. 5.5 In M.M. Khambhatwala's case 1996 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Merck Specialties also shows that they are independent legal entities and the transaction between them are on principal-to-principal basis. 5.7 In the light of these evidences available on record, it is crystal clear that the appellants are manufacturers on their own right and there is no manufacturing of goods on account of M/s. Merck Specialties Pvt. Ltd. Once this position is clear, the rules relating to input service credit distribution becomes easy to interpret. As per Rule 2(m) of the CCR, 2004 input service distributor' means an office of the manufacturer or producer of output service. In this case, the distributor is M/s. Merck Specialties ltd. whereas the manufacturers are the appellants. Since these are separate legal entities, office of M/s. Merck cannot be considered as an office of the manufacturer and hence Merck cannot be considered as an input service distributor' as defined under Rule 2(m) of the CCR, 2004. Further, as per Rule 7, the input service distributor has to distribute the credit to its manufacturing units'. The manufacturing units of the appellants are not that of M/s. Merck Specialties and these units belong to the appellants and therefore, M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buted. And this is subject to the condition that the credit is distributed by the manufacturing units head office/office and the distribution has to be made among the various manufacturing units belonging to the same entity. The scheme does not envisage distribution of credit to manufacturing units belonging to others. In the present case, we have already seen that the distribution has been done by M/s. Merck Specialties Ltd. who cannot be considered as input service distributor at all as the appellant as are job-workers, and the appellant's manufacturing units do not belong to M/s. Merck Specialties Ltd. Further office of M/s. Merck Specialties cannot be considered as an office of the appellant. Therefore, the distribution of credit by M/s Merck Specialties ltd. to the appellants are contrary to the provisions of law and accordingly, they are eligible for the input service credit distributed by Merck Specialties Ltd. and we hold accordingly. 5.9 This Tribunal in the case of Mangalore Refinery Petrochemicals [2013 (30) STR 475] held that ISD related provisions governing registration and distribution of input service distribution are special provisions and hence unless the terms ..... X X X X Extracts X X X X X X X X Extracts X X X X
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